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From the 1960s to the 1970s, the Philippines had the highest per capita GDP in Southeast Asia, surpassing countries like Thailand, Indonesia and Malaysia. Vietnam was not even in the picture because of the raging war.
In 1985, Thailand’s per capita GDP overtook the Philippines.
In 1993, it was Indonesia’s turn to overtake us.
In 1994, Malaysia surpassed us.
In the 1980s, Vietnam was grappling with the challenges of post-war reconstruction and the implementation of socialist economic policies, which proved disastrous. Our GDP per capita during this period was approximately $761 compared to Vietnam’s approximately $91.
But by 2020, Vietnam left us eating its dust.
By 2021, Vietnam’s per capita GDP further increased to $3,409, while the Philippines’ remained at $3,328, solidifying Vietnam’s lead.
According to ChatGPT, four factors enabled our neighbors to overtake us.
Political instability (1970s–1980s): The Philippines experienced political turmoil, including the declaration of Martial Law and the coddling of Marcos cronies. Several coup attempts after the People Power Revolution by Gringo Honasan and company also affected economic stability. Overly corrupt politics, rent-seeking economic elites and iffy rule of law became par for the course.
Economic policies: Some ASEAN countries implemented more effective economic policies that promoted industrialization and foreign investment. We were happy with OFW remittances.
Infrastructure and education: Investments in infrastructure and education in neighboring countries contributed to their economic growth. Our public education failed. Our youth became dumber and dumber with the World Bank declaring a 90 percent learning poverty.
Globalization: Certain ASEAN nations capitalized on globalization trends, attracting foreign direct investment and expanding their export markets. Enshrined in our Constitution is our fear of foreign investments (FDI).
Vietnam’s economy has averaged six percent annual growth over the past 15 years, driven by industrialization, export-led strategies and FDI.
The Economist recalled that Vietnam had serious problems after the war ended on April 30, 1975.
“At first the victorious communist regime tried to ‘liquidate’ the private sector. Shortages, rationing and hunger followed. Annual inflation reached 454 percent and half of the Vietnamese were living in poverty…”
Then they legalized private enterprise and embraced market forces. Doi moi or “renovation.” GDP per person increased 18-fold and poverty plummeted, The Economist reports.
“Foreign investors, attracted by Vietnam’s cheap labor, political stability (it is a single-party, authoritarian state), proximity to Asian suppliers and generous incentives for manufacturing, have built lots of factories assembling consumer goods for export.”
But today, The Economist reports, Vietnam has problems with growth.
“The pool of cheap workers is dwindling and wages are rising. And there has been relatively little spillover from the foreign-owned factories to the rest of the economy…
“Vietnam risks becoming stuck as an assembly hub, adding little value to components manufactured elsewhere. Vietnamese workers are simply assembling parts made, by and large, in China or South Korea. Even as export volumes have ballooned, the average unit value has stagnated.”
The Economist reports that “local firms struggle to meet the standards necessary to take part in global supply chains. Despite Samsung Electronics’ huge presence in Vietnam, none of its core suppliers is a homegrown Vietnamese firm… The small number of Vietnamese firms that do supply global manufacturers mainly provide simpler materials, such as cardboard and plastics…
“Meanwhile, Vietnam has reached the ‘Lewis turning point,’ at which developing economies exhaust their rural labor surpluses and wages begin to rise swiftly. Between 2014 and 2021, over one million agricultural jobs disappeared each year despite a growing labor force; in 2022-23 the pace decelerated to 200,000.
“Labor costs in manufacturing are already higher than in India or Thailand and are set to climb by a further 48 percent by 2029, according to the Economist Intelligence Unit, our sister company. Vietnam could soon end up too expensive for labor-intensive manufacturing yet too technologically unsophisticated to do much else—a classic middle-income trap.”
Still, Vietnamese leader To Lam, the new chief of the Communist Party, the country’s top position, is determined to do a Deng Xiaoping.
The Economist quotes To Lam: “The private sector is the most important driving force of the national economy.” Lam wants to lift the private sector’s share of output to 70 percent, from around 50 percent today.
But The Economist reports, “life is not easy for Vietnam’s private sector, doi moi notwithstanding. Regulations are complex (sounds like our situation), enforcement is opaque, the state dominates banking and thus, also controls access to credit. All this tends to benefit big, politically connected businesses.
“Rigged bids for public procurement, sweetheart land deals and cut-price loans are rife. Successful businessmen, in turn, are expected to contribute to society. Moving capital outside Vietnam is frowned upon (our taipans invest in China).
“Small businesses also face a shortage of talent. Unlike China, Singapore or South Korea, Vietnam has no world-class universities and its best institutions rank below their counterparts in India or Malaysia.”
But The Economist reports, Mr. Lam has been boldest in cutting the bureaucracy, making a leaner, more capable state (something our presidents only pretended to do).
“He has abolished five ministries and eliminated an entire layer of the bureaucracy, at the level of Vietnam’s 705 districts. He is reducing the number of provinces from 63 to 34. All this is eliminating 100,000 jobs from the civil service. He has decreed that there should be a 30 percent reduction in red tape.”
It is not too late for us to catch up or at least not be left too far behind. Vietnam has a lot of the same problems we have. But they seem to have a higher quality of leaders and the Vietnamese have a sense of nationhood and genuine love of country. That makes a lot of difference.
We have lessons to learn from Vietnam. We simply must want to stop being the regional loser we have become, overtaken by almost all our neighbors.
Boo Chanco’s email address is [email protected]. Follow him on X @boochanco
